Allstate hanging on to financial biz

Allstate Corp.'s $560-million deal last week to sell its variable annuities business has some on Wall Street wishing the insurer would unload its entire financial services division.

Allstate Corp.'s $560-million deal last week to sell its variable annuities business has some on Wall Street wishing the insurer would unload its entire financial services division.

Allstate's stock probably would rise if the insurer sold Allstate Financial and used the proceeds to buy back the company's own shares, says Clifford Gallant, an analyst with Keefe Bruyette & Woods Inc. in New York.

The sentiment reflects the business' shortcomings. Five years after CEO Edward Liddy trumpeted financial services  life insurance, certificates of deposit and retirement-planning products  as a growth area for Allstate, profits from the division have barely budged. With a return on equity of about 10%, Allstate Financial is far less profitable than auto and homeowners insurance, which boasts a return of around 20%.

Yet the Northbrook-based company isn't throwing in the towel, says Allstate Financial Chief Financial Officer John Pintozzi. One challenge has been to prod agents, who are more comfortable quoting auto and homeowners rates, to sell financial products aimed at saving for retirement, he says.

"Some of our people do it phenomenally well," Mr. Pintozzi says. "There's not as many who do it as well as you'd like."

Allstate has hired more financial specialists and licensed 8,000 of its 13,000 agents to sell investment products. The company will continue to sell its own life insurance and fixed annuities, which provide buyers with a steady stream of payments in their retirement. (Variable annuities, the unit Allstate is selling to Prudential Financial Inc., provide buyers with post-retirement payments that vary with stock-market returns.)

Four years ago, Allstate upset some agents by imposing new quotas for selling financial products and fired some for failing to meet those goals.

"It's not as bad as it was three or four years ago, because the company is on a hiring binge," says Dale Revels, a Florida agent who heads the National Assn. of Professional Allstate Agents, a group of activist reps.

Many agents haven't been successful selling life insurance and other financial products because "they don't view it as what they do," says Byron Udell, CEO of Wheeling-based life insurance agency AccuQuote. Unlike auto and homeowners insurance, "it's not a product people have to own."

Allstate Financial contributed $416 million in profit to the company in 2005, 24% of Allstate's earnings last year but only a little more than 10% in normal years without huge hurricane losses. Agents sell life insurance and other financial products to about 10% of Allstate's 17 million customers, a percentage that has changed little in the last five years.

Even if Allstate Financial doesn't grow much, it does help cushion against the earnings blow from hurricanes and other natural disasters, Mr. Pintozzi says.

"When there are high catastrophe losses, it feels pretty good to have a life (insurance) subsidiary," he says.